Los Angeles Ad Agencies Struggle

By RICHARD W. STEVENSON, Special to the New York Times

Published: October 24, 1988

LOS ANGELES, Oct. 23—
When it opened an office here three years ago, Scali, McCabe, Sloves was not alone among New York-based advertising agencies in regarding this as a most promising city for expansion - a vibrant, trend-setting market that styles itself as the hub of the Pacific Rim.

''It appealed to me to be in such a very big, growing, exciting market,'' said Marvin Sloves, the agency's chairman. ''We liked the idea of having our name in L.A.''

Earlier this year, Scali admitted defeat in Los Angeles, closing its office after failing to land any major clients and struggling to hold what business it did develop.

''The truth is that Los Angeles doesn't need another New York agency,'' Mr. Sloves said. ''There isn't enough business to go around.''

Scali is not the first agency to be chastened by its experience here, and industry executives said it will not be the last. Los Angeles has become perhaps the most overcrowded and hotly competitive market in the country for ad agencies, agency executives say. For all its promise and allure, it has proved a disappointment to many of the big shops that have established offices here.

''It's like the Gold Rush,'' said Jerry McGee, the managing director of Ogilvy & Mather's Los Angeles office. ''A lot of people go back home empty-handed.''

Los Angeles is by no means a washout as an advertising center. While it still trails those in New York and Chicago in size and prestige, the Los Angeles advertising market has expanded rapidly in the last two decades. The expansion has mirrored robust growth in the population and the economy of Southern California as well as the emergence of Los Angeles as a major financial center and port of entry for many Asian companies.

Locally based agencies like Chiat/ Day, which developed innovative campaigns for Apple Computer and Nike athletic shoes and now handles Nissan automobiles, established that Los Angeles could produce advertising as creative as anything from Madison Avenue. Chiat/Day, which is now the largest agency here and has successfully built up a New York office as well, no longer has the Apple or Nike accounts. In addition to its ''Human Race'' campaign for Nissan, the agency is probably best known now for its offbeat ''Let U.B.U.'' campaign for Reebok shoes.

Other agencies whose headquarters offices are in New York or Chicago, like Foote, Cone & Belding and Ogilvy & Mather, have successfully established themselves here over the years and generate respectable billings. Foote, Cone is now the second-largest agency here; its accounts include Mazda automobiles, Sunkist Growers and Denny's restaurants.

''There's a lot of very good business in L.A. to support a good agency,'' said John A. Adams, president of Bozell, Jacobs, Kenyon & Eckhardt's Pacific division. Bozell, Jacobs has recently won big accounts from the Rockwell International Corporation, which is based here, and the Asics Tiger Corporation, a Japanese company that makes athletic shoes. Down and Out in L.A. Still, many advertising executives say that Los Angeles has proven to be a far more difficult environment than they expected. For all its economic vitality and diversity, the region is home to few of the large consumer-products companies that are usually an advertising agency's most active clients. The flashiest accounts here, those of the movie studios and other entertainment companies, are also among the most difficult for an agency to handle, because the fortunes of studios rise and fall suddenly, and agency changes are as frequent as new studio chiefs.

Moreover, the city's pre-eminent position in Pacific Rim trade has failed to translate into big new accounts as rapidly as many agencies had hoped. The Japanese and Korean car makers have certainly been a boon to some Los Angeles-area agencies. Toyota automobiles are handled by Saatchi & Saatchi/DFS here. American Isuzu's advertising is created by Della Femina McNamee WCRS. Backer Spielvogel Bates has an office in Orange County to serve the Hyundai account. American Honda is handled by Rubin Postaer & Associates.

Other categories, like consumer electronics, also remain healthy. But an increasing number of agency executives question whether there will ever be as much international business here as they once envisioned.

''The truth of the matter is that most of the business that's coming from the Pacific Rim has already arrived,'' Mr. McGee of Ogilvy said.

Scali opened its office here to serve Continental West Airlines, which was expected to be a $3 million account. But the airline folded, leaving the agency without the cornerstone that executives said is necessary to make an operation here viable.

Over the next several years, Scali was able to pick up some other accounts, like the Port of Long Beach, Altos Computer and California Magazine. But last year it lost a number of clients, including Altos, and could not win other big pieces of business. A Touch of Desperation

New agencies continue to flock here nevertheless, full of confidence in their ability to mine the riches of the West. A result, executives said, has been a more intense scramble for accounts, to the point where very big agencies sometimes find themselves chasing very small and unattractive pieces of business.

Agency executives repeatedly cite the example of Dinkum Dog, an Australian fast-food chain interested in breaking into the United States. Six major agencies and several smaller ones pursued the Dinkum Dog account last year, even though the company was planning to spend only $1 million on advertising - small change by major-agency standards. D'Arcy Masius Benton & Bowles won the competition, but Dinkum Dog went into bankruptcy proceedings before any advertising appeared.

In that kind of environment, it is not surprising that many agencies have had trouble. Wells, Rich, Greene/ West was one of the agencies whose initial success here seemed to confirm the rich potential of the market. Starting in the mid-1970's, the agency was one of the hottest in town, winning an array of entertainment, packaged-goods and fast-food accounts.

Then, in 1985, the trend reversed. The $10 million Hills Brothers coffee account left because of a conflict with an account handled by the agency's New York headquarters office. The $23 million Jack-in-the-Box restaurant chain took its business elsewhere. The American Savings and Loan Association also left. Suddenly, the agency was down to a single account: the MGM/UA Entertainment Company. Despite new management brought in to rebuild the office last year, MGM remains the agency's only major account here. Optimism for Long Term

Whatever the competitive difficulties encountered by themselves and others, many agency executives remain bullish about the long-term prospects of Los Angeles as an advertising center.

When doing business in Los Angeles, said Joseph W. O'Donnell, chairman of Campbell-Mithun-Esty, it is important not to view the city as merely a West Coast version of Madison Avenue. Where the New York agencies concentrate on building images for packaged-goods brands, the business available in the West tends to be more retail-oriented, he said. Agencies in Los Angeles should tailor themselves to service franchisees, car dealers, health and tennis clubs, movie studios and the like.

''No assumption should be made,'' Mr. O'Donnell said, ''that what is needed in New York is needed in L.A.''